Author: johnredwood

Germany exports luxurious gas guzzling cars to the world’s rich. You do not hear many  Germans queuing up to complain about the conduct of Mercedes customers, seeking to expose the tax dodges of some who buy luxury cars. Nor are most Germans keen  to regulate and tax the high fuel using car industry out of existence in the name of the environment. Germany may be green in  some ways, but never in a way which would stop it making so many high fuel burning vehicles.

The UK sells top end flats to the same people, building very expensive flats that would otherwise not exist. We sell  the super rich a little bit of London. Many in the UK think this is a disaster. They clamour for higher Stamp duty and Capital Gains to try to tax them out. They talk about other possible controls. In a way the UK product is shrewder than the German. Whereas the German car, once exported, is serviced and maintained in a foreign country, the UK flat stays here and provides UK jobs to furnish, equip and service it. The UK can carry on taxing the flat owner, whilst the overseas country gets to tax the German car.

France sells some expensive processed water to the super rich in the form of wines and perfumes. You do not hear the French complaining that the rich are getting inebriated on French wines, or that the foreign buying means that French people can no longer afford their own Chateau  Latour or Yquem. They work hard to package the wine and tell the story of its production in a way geared to maximise the revenue take from the world’s super rich for the “finest” wines available.

The Uk specialises in private banking and financial services for those same super rich. The air is thick with complaints about the charges and practices of parts of the banking and financial service industry. The UK is quick to condemn and keen to tax and regulate one of its best money earners. Do too much and the rich will be off to Switzerland or Hong Kong for those services. All main political parties want to change the balance between financial services and the rest. Germany does not have a policy of reducing its dependence on auto manufacture.

I am all in favour of us broadening the range of products and services we can sell abroad. It makes sense to do so. What does not make sense is to be so critical of the ways we currently have of earning overseas revenue, before we have found better ways of paying the bills. Maybe part of the answer to help pay for all the imports is to export more financial and banking services, and sell more top end flats. Otherwise we have to carry on selling off the assets we already own, as we have had to do in recent years given the large balance of payments deficit. One of the hard truths of lfie that socialists do not like is you have to sell more to the rich, as they have the money to employ people.

Under both recent governments the UK has got used to buying many more imported goods than we export. Years ago when we did this, we sold more services abroad and enjoyed a surplus of earnings on investments from overseas, which gave us sufficient foreign currency to pay for the goods.

Now we still generate a surplus from services, but no longer enjoy the same big net income from investments overseas compared to foreign interests taking loan interest and dividends out of the UK based on their investments here. All those years of boasting about how much foreign investment we have attracted into the UK takes its toll on the national income and wealth figures. Every time a foreigner buys an existing company or puts in a new factory of his own, he  gains the right to take money out of the UK as those assets earn him income. There are now bigger foreign incomes on  assets  in the UK than we earn from  holdings of wealth elsewhere.

If we cannot export enough goods and services to pay for all the imports, and if we no longer have enough interest and dividends coming in from our overseas holdings to offset all the interest and dividends now going out, we need to find another way to pay the bills. We have to either sell some assets to foreigners, or borrow money from abroad to keep hold of the assets we have. It amounts to the same thing in the end. If the UK does not sort out its balance of payments deficit, the loans will have to be repaid by selling some underlying assets.

When I wrote here briefly recently that the UK has to sell assets to pay for the imports, I was not recommending it as a policy. I was merely pointing out the obvious. Some seemed shocked. How else do you think we have been managing to import so much more than we can afford out of our regular income? How else do you propose we pay for all the excess imports if we cannot export more?

The Coalition government wants us to export more. That is the best way to afford our imports. We should be keen to export services as well as goods, as they all earn us the foreign currency we need to pay the bills. T0morrow I will look at the way the UK likes to attack the very  businesses that offer us most hope of exporting our way out of this problem.

I have just been reading the excellent Civitas Report on trade and the EU. It shows that under the regime of the single market the UK reaped no benefit by beign inside the so called market. Our exports to the rest of the EU went up much less than those of many countries which stayed outside the arrangement.

           News came out  today that  the UK, Denmark and Ireland lost another European Court case. Opted out from provisions over policing traffic offences, the UK learned that the measure will be revised as a road safety rather than a police co-operation measure, so it will apply to all 28 states regardless.

          I asked the Secretary of State today to confirm that large mergers involving companeis with assets and turnover in a variety of EU states fall to be decided by the EU authorities, not by individual member states. He of course confirmed that truth. He also agreed that Labour’s 2002 Act anyway took the politicians out of normal UK merger issues  save for ones involving the media or defence. Most of the debate about this matter in the UK is therefore irrelevant to the true legal position which will apply.

There is one good reason why government should not decide who should in the future owns the assets of Astra Zeneca. That is the government does not  own them, someone else does. If you want to live in a free society you need to permit private property, and allow people to sell and buy property as they see fit.

There has been a bipartisan agreement for many years that the government should only intervene to stop a takeover of a company if the takeover damages competition too much in the marketplace. Then government does intervene to prevent the accumulation of monopoly power by private interests. This settlement has also been reinforced by EU Competition Law. The last Labour government decided to make our competition law comply fully with emerging EU rules and requirements, which too are based on the prime aim of preventing damage to c0mpetition in the market. Monopolies are bad things, allowing companies to overcharge, provide a bad service, and fail to invest and innovate. That’s something the public sector knows all about from some of its own activities.

There have been few exemptions to the primacy of competition as the sole criterion to intervene. Media plurality is said to be one of them, yet this is really a reinforcement of the importance of anti monopoly provisions in the area of newspapers and tv channels. The main aim is to keep these markets competitive or to encourage more competition. They do not seem to apply to state broadcasters, in the usual asymmetric EU way.

Defence businesses may also operate under stricter and more comprehensive rules. In practice anyway government has a major role in deciding whether a defence business takeover or merger goes ahead, as the state is the main customer. It would be odd indeed if someone sought to  buy out a defence business in the UK that the UK government did not like, as they would not be able to sell the product to the home market, and the overseas sales are heavily regulated by the government. Sensitive technologies of importance to UK defence are protected by official secrets laws.

There is now also an additional criterion allowing government to intervene if a merger might threaten the stability of financial markets. Again this is little more than an underlining of the competition rules in the banking and financial sectors. Only very large mergers are likely to  cause problems under this clause, and they could also be ruled out on the grounds of market share in most cases as well.  Anyone seeking to buy a financial business would be well aware that it has to remain a regulated business, where the Financial regulators can force any requirements on the business they like when it comes to capital and conduct.

Mr Miliband now says he wants a national interest catch all clause br0ught back. He might find this is against the EU law on  this topic, which could cause him some embarrassment as a good European enthusiast. He will also need to explain on what grounds government should intervene apart from competition under this new clause, and try to persuade us how a government Minister would be a better judge of these things than the owners of the company concerned.  He will also need to reassure us that this is not some further anti rich foreigner rant of the kind we are becoming used to from his party. It is always easy for a company to make all sorts of generous promises to the workforce and about investment plans  when trying to buy a company, but nothing to stop them changing their mind after the event or if circumstances change.

There are good foreign takeovers of UK companies and bad ones. I do not defend the right of foreign interests to buy UK companies on the grounds that the new owners will always be successful business people, or that they will always act in the interests of a UK workforce. Like British owners of businesses, some will prove talented and resourceful backers of the businesses they buy, and will grow them successfully here. Some will grow them worldwide. Some will do badly, or will strip assets out, just as some home spun entrepreneurs do.  I just don’t think government Ministers would be good at deciding who are the good guys to be trusted and who the bad. Nor do I think British owners of businesses will prosper as much  or work as hard if they know they will not be allowed to sell to the best bidder when the time comes.

There are competing ways on offer to make people better off.

There is the socialist way. That depends on taxing the better off more, to give more money to those who are on low incomes or no incomes. The problems with this method include the unwillingness of the rich to stay and pay if you put taxes up too much, the disincentive effect if you give out too much free money without strings, and the way you have to drag too many people into paying tax to sustain it all.

If you take it too far you end up with a corrupt and poor society like the old USSR. The new rich and privileged run the state and live off the taxes. The rest pretend to work and live off handouts. Average incomes are much lower than in freer societies. There is less income inequality, but far greater power imbalances between the haves and the have nots.

There is the free enterprise way. That relies on individuals offering public service for their own personal rewards. In doing so they  create more wealth and jobs. There can be higher levels of income inequality, but also a much  higher average than in the socialist systems. Democracy can reduce the power imbalances that you get in totalitarian societies, with the state championing those who need help.

In the UK we have always gone for a mixture. Keen advocates of free enterprise like me accept the need for substantial redistribution by higher tax revenues from the rich, and sensible benefit systems for those out of work or disabled. The political battleground is over the balance – how much extra tax, how many more benefits, what is the right balance of protection and incentive? Even more important is the battle over what rate of tax will maximise revenue and do least damage to the economy.

One of the  biggest differences between parties of the left and Conservatives lies in the approach to groups of people who typically do not support your party. The left likes to have hate lists. They love to boo the bankers, harry the hedge fund managers, belittle the believers in an independent UK and castigate in most unpleasant terms the “climate change deniers”. They simply do not like richer and successful people.

Good Conservatives have no equivalent list of groups we dislike. I like Labour condemn bankers who steal from their clients. I also condemn NHS doctors who kill or harm their patients, and nurses who put their own comforts above the needs of their patients. I do not think that because there are a few bad doctors and nurses I should criticise them as a group. Why do the left have to condemn all bankers, when most simply provide a necessary financial service to us all?

Conservatives  do mot  criticise Labour’s client groups, in the way Labour regularly criticises some groups of successful workers or business people. You cannot generalise easily about groups. If you choose to do so in condemnatory fashion you will condemn many who are decent and do not deserve your words.

The best way out of poverty is a job. The best way out of low income is a better paid job.

So how can we help more achieve these successes in life?

It starts in school. Some state schools offer a great ladder for children from low income households. Others do  not. This government is working on improvements.

It carries on after school. More people do well in life who make it to university or College to get further qualifications. We need to consider better access for all with the talent and energy to the best in post 18 education.

It continues over spending and investing. If you save and invest wisely, if you buy your own home early in life, you give yourself much more chance of financial success.

It can be a question of whether you have the confidence and the skills to run your own business or not. There can be better rewards for the plumber, the lawyer, the business consultant or the driver if you work for yourself and build up your own business. There are also more hazards and hurdles to leap.

So how can government help?

Should government intervene more in the early years, when disadvantaged children can be let down at home which make s school difficult?

If you ask which advanced countries have grown fastest since 1999, the answer is the US and the UK.  Real incomes and output are up by around  30% (to 2012) in these two leading economies, compared with growth of around 20%  in France and Germany. Italy and Spain are lower.  Those who write in to this site to belittle the UK’s economic performance should take note. On this measure Japan has done badly, leading to people to talk about a lost decade or two with no growth.

If, however, you ask about growth per head the picture is different. Italy, France and Spain still struggle at the bottom of the table, but Japan fares much better. Falling population in Japan is part of the reason why GDP is not growing. When you measure output for each individual in the society, the Japanese growth rate has been faster than the UK and the US.  Germany also does better on this measure. Japan between 2003 and 2012 grew  by around 7%, the US by around 6% and the UK around 4%.

This week sees the visit of the Japanese Prime Minister to Europe. Last week President Obama was in Tokyo. Unusually, the two close allies did not reach agreement on crucial matters for the planned trade agreement or “Trans Pacific Partnership”. Japan is not willing to go as far as the US wants in liberalising agricultural trade.

Japan sees the need for more allies in the west. Whilst the US has reaffirmed her military and diplomatic support for Japan at a time of tension with China, the move of the US towards less foreign intervention is leading the Japanese to look around for additional security through partnerships elsewhere as well. Japan is easing her restrictions on the export of arms and looking for security partnerships with leading EU countries and NATO.

The curious case of the Japanese economy is worthy of study for those of us wrestling with the aftermath of the Great Recession and banking crash in the west. Japan took a long time to sort out her broken banks and to adjust her grossly overblown property market following the collapse of 1990. Japan has run with very low interest rates for years, has built up a collosal state debt, run large deficits and has printed a lot of extra money. None of this has so far proved inflationary, nor has it boosted output much.

Japan has been able to do this because it has high domestic savings, with savers prepared to put much of their money into Japanese state debt. It has also run a good balance of payments surplus until recently, meaning it has a strong external position. These forces do not apply in the US and UK.  Japanese policy is geared to trying to generate some inflation, which is starting to  happen.

There is growth and there is growth. People in practice value growth in their own incomes and living standards more than general growth, which may in part be based on expanding the population. The figures show Japan has not done as badly as some think, though an ageing population and an economy relatively closed to 0verseas money and talent does find it more difficult to adapt than more open societies. The UK is now going to enjoy both sorts of growth, after a period of poor performance in real incomes  led by the big drop in output and income per head in the Great Recession.

In the debate over how desirable it is to sell companies to foreigners people neglect the obvious. All the time we import more than we export we have to sell assets to pay for the imports. That might be flats and houses, it might be companies, but it has to be something. If we want fewer foreign owned companies then we have to sell more goods and services abroad.